Allowing children to manage a part of their college budget is a great way to teach them about budgeting. The following are some ways our clients have used this to establish budgeting principles.
- Giving the child a lump sum of money at the beginning of each semester to pay for books. This encourages the child to find used books versus new books if there was no limit. The child realizes that when the money gets spent the remainder of costs come out of their pocket.
- Give the child a lump sum for their living expenses (other than room & board/fees/tuition/books). If this technique is used, it is important to not send extra money when you get a call four weeks into the semester when the lump sum is gone. It will take additional time of the parent to help the child budget appropriately, otherwise giving a lump sum of a small amount of money can cause frustration for the child when they run out of money very early in the semester. It helps the child budget the money over a complete semester as to:
- How often to eat out
- What recreational activities to participate in
- What weekend trips to take
- Purchase clothes now or later
I have had some parents let the child keep half of what is left over at the end of a semester to use however they want.
- Many times living in an apartment can be less expensive than living in the dorm. If the child is given a budget for rent and food versus dorm and cafeteria plan, this could be a way to save money. It also can teach life skills such as how to cook and eat balanced meals.These are things that the child will need to know when they graduate and get out on their own.As in item #2 make sure the budget is reasonable.We don’t want it to end up costing more than the dorm and we don’t want the child to run out of money early.Having the rent or utilities in the child’s name may also help establish credit.
There are always exceptions. Children run out money before they should. This is common. How you communicate with them in advance of the semester, during the semester, and at the end of the semester will help minimize problems.
Bill Reno CFP®